FY 2012 BUDGET NEWS:

Once Congress and the White House came to an agreement on current Fiscal Year (FY) 2011 spending and averted a looming government shutdown, attention turned to the FY 2012 budget and the issue of deficit reduction.

House Republicans unveiled an FY 2012 budget blueprint the week of April 4 that would cut more than $6 trillion from the President’s spending over the course of the next decade, and would seek to shrink the deficit as compared to the President’s budget by more than $4 trillion over that same 10-year time period. However, it would only reduce the Congressional Budget Office (CBO) baseline deficit by $1.7 trillion because the baseline budget assumes repeal of the Bush-era tax cuts.

The House Republican plan for FY 2012 highlights important policy differences between the parties and there is little chance that the GOP plan will advance in the Democratically-controlled Senate without some sort of revenue raising element. Nonetheless, the budget offers a largely-symbolic picture of the new conservative majority in the House and its priorities of entitlement reform and deficit reduction. Moreover, it may be the base from which the discussion advances.

Important policy differences between the parties were reflected in the House GOP’s budget resolution, including the following highlights:

  • An overhaul of the tax code, including lowering the top individual and corporate tax rates to 25 percent;
  • Medicare reform that would essentially privatize the program by having future retirees receive subsidies to buy coverage through private health care plans certified by the government;
  • Medicaid reform that would replace the current formula-based program with a block grant system under which states would receive a set amount of funding from the federal government, giving states flexibility on how to administer that funding and who can receive it;
  • Trimming overall domestic discretionary spending to below FY 2008 levels and freezing it there for five years; and
  • Cuts suggested by the Department of Defense that reflect $178 billion in savings, of which $100 billion would be reinvested in other military priorities with the rest being used for deficit reduction.

The GOP plan for FY 2012 was approved by the House Budget Committee on April 6 by a party-line vote of 22-16 and was approved by the full House on April 15 by a near party-line vote of 235-193.

In a speech earlier that week, President Obama offered alternatives to the House Budget Committee’s plan to turn Medicaid into a block grant program and privatize the Medicare program. Amid criticism of the GOP proposal, the President recommended the expansion of cost-saving policies that are already contained in his healthcare reform law – the Patient Protection and Affordable Care Act (PPACA).

For example, he proposed giving additional power to the newly-created Independent Payment Advisory Board that is tasked with curbing Medicare costs. Under current law, the Board will make recommendations to reduce costs when Medicare spending per beneficiary passes the per capita gross domestic product (GDP) plus one percent. President Obama has recommended lowering that trigger to a rate of GDP plus 0.5 percent beginning in 2018. The Board’s recommendations would become law unless the House and Senate both pass a resolution to block them, which would require a three-fifths majority to pass in each chamber.

With regard to Medicaid, the President was critical of the House GOP plan to turn it into a block grant program, and instead advocated a single federal matching rate for all Medicaid spending that would increase automatically should enrollment rise to due a recession.

HHS LAUNCHES NEW “PARTNERSHIP FOR PATIENTS”:

On April 12, the Department of Health and Human Services (HHS) announced the launch of its new “Partnership for Patients” program, a public-private partnership that is aimed at reducing preventable injuries and complications in patient care over the next three years. Hospitals, physicians, health plans, consumer and community organizations, employers, unions and others can all pledge to join the Partnership. The main goals are: (1) keeping patients from getting injured or sicker in the health care system and (2) helping patients heal without complication by improving transitions from acute-care hospitals to other care settings, like home care or a skilled nursing facility.

Up to $1 billion is available under PPACA for this program, allowing HHS to work with various public and private partners to achieve the two goals of keeping patients from getting injured or sicker and improving transitions between care setting. Up to $500 million will come from the new Center for Medicare and Medicaid Innovation in order to test different models of improving patient care. The Community Care Transition Program will provide the remaining $500 million for community-based organizations that partner with hospitals to provide care transition services.

The Partnership for Patients is not a shared savings model and therefore would not conflict with participation in Accountable Care Organizations (ACOs).

More information on the Partnership for Patients can be found here.

PRESIDENT SIGNS REPEAL OF 1099 PROVISION INTO LAW:

Following House and Senate passage earlier this year, the President on April 14 signed into law legislation that repeals an onerous business tax reporting requirement in PPACA. The bill – H.R. 4 – revokes a provision that required businesses and real estate owners to file a 1099 tax form with the Internal Revenue Service for every vendor to whom they paid more than $600 a year.

The legislation is significant in that it marks the first notable portion of PPACA to be overturned, and that it was widely supported by bipartisan majorities in both the House and Senate. The cost of repealing the 1099 provision is $22 billion, which is paid for by requiring certain individuals to pay back a piece of the health insurance exchange subsidies they receive under PPACA, should their income levels increase during the year.

PROVIDERS EXPRESS LUKEWARM REACTIONS TO RECENT ACO RULE:

The recently-released proposed rule on ACOs (discussed by our team on April 4, April 5, and April 7) has been met with tepid reactions among various physician groups and hospitals. According to recent statements, the proposed rule seeks to impose more controls over the new organizations than had been expected. In addition, some providers have indicated that the groups that do participate in program are more than likely going to be well-financed, large and operating in established healthcare markets – leaving few incentives for marginal players to participate.

NEXT STEPS:

We will continue to offer additional analyses and views on ACOs and the Medicare Shared Savings Program in the coming weeks. In addition, we continue to follow news from Capitol Hill as budgetary and other healthcare-related measures are considered by Congress. We will bring you timely updates as these developments occur.